The Employment Report Can be Viewed as Good for Economic Resilience
Does the Fed need to slow its tightening plans? Thankfully no, and darn it, no. On Friday, a report showed the U.S. economy created 263,000 jobs in September; this confirms a strong labor market, albeit one that has begun to slow somewhat. While this is a deceleration in jobs growth from the 315,000 jobs added in August, the report confirms broad-based strength in the labor market, at the average of what economists had been forecasting.
Why this is Positive for Stocks
The Fed has two main mandates, keep inflation in check (price stability), and make sure people have jobs (maximum employment). Friday’s report offers the clearest sign yet that the labor market is still showing considerable strength, although off its peak, as tighter monetary policy and higher labor costs begin to weigh on demand for workers. Although a slight cooling is evident, there is nothing in the report to suggest the Fed will alter its aggressive path of tightening monetary policy.
The cooling of the labor market is desirable when working to tame inflation. But it is likely employment is still promoting price pressures for labor. The number should confirm that the Fed is inclined to hike rates by a fourth consecutive 0.75% in November.  Â
Of particular concern, as it relates to inflation, for the Fed is the continued strength in wages and decline for the month in labor-force participation, which remains well below its pre-pandemic level. The lack of workers allows inflationary bargaining power to those in the workforce or seeking work.
 Growth in average hourly earnings, which had slowed in August, remained steady in September, with wages climbing another 0.3%. And the labor-force participation rate erased a bit and was down 0.1 percentage point to 62.3% as fewer U.S. citizens looked for work than the month before. That contributed to the drop in the unemployment rate, which fell from 3.7% in August to 3.5%.
On the Downside
The resolve of this Fed can be stated this way, as long as the labor market remains healthy, they will remain hyper-focused on reining in inflation without concern for people’s 401ks or other distractions. They can afford to kill a few jobs, and bond or stock investors are not on the Fed’s list of primary concerns.
News to Use From Jobs Report?
Jobs were added in a number of industries, with big gains in the healthcare, leisure, and hospitality sectors. These are industries where positions had been lost during the pandemic. The construction industry, which many economists expected would shrink, added 19,000 jobs in September, in line with the average monthly growth so far this year in construction.
On the bad side, the retail sector lost more than 1,000 jobs in September. It remains broadly strong after three months of gains, 1000 across the population is not yet a concern.
The numbers reflect ongoing catch-up in hiring. Employers are still working to fill jobs lost during steps taken related to Covid-19 fears; the increased demand in many areas makes it difficult to find enough workers. The scenario could keep the labor market strong over the coming months, even if the Fed is successful in slowing the broader economy.
Other data not headlined in the labor market report shows signs the labor market remains strong. The number of workers who were employed part-time for economic reasons, meaning they would have preferred full-time work but had seen their hours cut or were unable to find full-time work, declined by 306,000 in September after rising for two straight months. More work, if wanted, is a strong factor that gives the Fed breathing room.
Another very telling group that showed employment expansion is not as robust as the numbers suggest, is the increased hiring of temporary help. Companies tend to release temporary workers; first, this type of work continued to rise. The sector added another 27,000 jobs in September.
Take Away
Employment remained strong through September. While this may indicate the Fed can continue to raise rates at will for stock market participants, it also means businesses have the potential for more output. So, while the headline news may scream rates ‘will go up!’ and ‘markets should beware!’, the better message is businesses continue to hire. This is especially true for leisure and less accurate for retail companies; the economy can be expected to keep plodding along if everyone who wants a job has a job.
Managing Editor, Channelchek
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